House Ways and Means Committee chairman says GOP is facing a 'monumental challenge' on tax reform

U.S. Rep. Kevin Brady, a Republican from Texas and chairman of the House Ways and Means Committee, listens to a question during an interview at the Securities Industry And Financial Markets Association annual meeting in Washington, D.C., on Oct. 23. Photographer: Andrew Harrer/Bloomberg

The House's tax-writing committee began four days of work to hammer out the Republican tax plan Monday afternoon in Washington. Here's the latest on the decisions:

House tax chief says bill hits special interests

House Ways and Means chairman Kevin Brady told his panel it faces "a monumental challenge" this week: "coming together to fix a tax code that has become just as broken, complex and unfair as the one President Reagan and Congress overhauled in 1986."

In his opening statement, Brady said the bill, which would cut tax rates for corporations and certain closely held businesses as well as for individuals, would spur economic growth. He said that by removing breaks for special interests, the bill would make the tax system fairer for all.

"This is liberation from high tax rates that punish hardworking Americans while Washington special interests get a pass," Brady said. The bill would end a tax system that is "by special interests, of special interests and for special interests," he said.

He added that although members had requests that weren't ultimately included in the tax legislation, "I can assure you this is not the last tax markup our committee will ever hold."

Rep. Richard Neal, the panel's top Democrat, cited concerns over the bill's proposals related to companies' offshore profits, and changes to deductions for mortgage interest and medical expenses.

"The legislation, which was crafted solely by the majority party behind closed doors and which was not made public until late last week, puts the wealthy and well-connected first, while forcing millions of American families to watch as their taxes go up," Neal said.

House panel's speed on tax bill irks Democrats

Democrats called for slowing down the Ways and Means Committee's consideration of its tax bill -- saying lawmakers need to consider the legislation's provisions for stemming tax avoidance.

"We gather at noon today," said Rep. Lloyd Doggett, a Democrat on the Ways and Means panel. Yet there have been "less than 100 hours of evaluation of the bill," he said.

On Sunday, an international journalism group published reports that alleged tax avoidance by U.S. multinational companies including Apple Inc. The reports, based on documents obtained from an offshore law firm, also linked high-ranking officials in President Donald Trump's administration to holdings in offshore tax havens such as the Cayman Islands and Bermuda.

Democrats and tax-advocacy groups have called for delaying consideration of the tax bill pending more disclosures. On Monday, a pair of Democratic senators said the bill would do too little to stem aggressive tax avoidance.

"If you deduct medical expenses or student loan interest from your taxable income, the Republican plan comes after your wallet," Democratic Sens. Chuck Schumer and Ron Wyden said in a joint statement. "But if you stash your billions in secret bank accounts overseas, their plan gives you the green light to keep doing what you've been doing."

Schumer is the Senate minority leader. Wyden is the top Democrat on the tax-writing Senate Finance Committee.

Brady targets Carried Interest

The carried interest tax break that provides an advantage for investment managers would be revised under changes the House's chief tax writer says he's planning.

Brady said on CNBC on Monday morning that he intends to attach a "two-year holding period" to carried interest. The tax break is used widely among private-equity managers, venture capitalists, certain real estate investors and hedge fund managers.

Carried interest is the portion of an investment fund's profit — usually a 20 percent share — that is paid to investment managers. Currently, tax authorities treat that income as capital gains, making it eligible for a tax rate as low as 23.8% — on gains from assets held for a year or more. The top tax rate for ordinary income is 39.6%. The change Brady's proposing would double the length of time an asset would have to be held to qualify for the lower rate.

"We will put in the two-year holding period on carried interest to make sure it's really focused on those long-term, traditional real estate partnerships," Brady said on CNBC.

A group that represents private equity funds said that making the change would put economic growth at risk. "Alterations to the treatment of carried interest — and all other capital gains — discourages investment and jeopardizes economic growth," said Mike Sommers, the CEO of private equity industry group the American Investment Council, in an emailed statement.

President Donald Trump had made an issue of the special tax benefit during his presidential campaign. He labeled some hedge fund managers as "paper pushers," who are "getting away with murder."

Many hedge funds don't benefit from the tax break. That's because many hedge funds hold assets for a short period of time — especially those that use computer-driven strategies to buy and sell securities thousands of times a day. Hedge funds could still get the break under the change if they held assets for two years or more before selling.